Uncertainty Persists in Financial Markets; Federal Reserve May Only Cut Its Interest Rate Once in 2024
As usual, we are going to take a look at the US Federal Reserve’s monetary policy as policy changes in the United States (or market perceptions about approaching policy changes) impact on the Indonesian rupiah rate as well as on monetary policy that is set by Indonesia’s central bank (Bank Indonesia).
Latest News from the US Federal Reserve
There is some important news to share. While it is in line with expectations that the Federal Reserve left its benchmark interest rate unchanged at the latest monetary policy meeting (11-12 June 2024), policymakers indicated they took two interest rate cuts off the table. Earlier, back in March 2024, Fed officials still expected three cut rates in the second half of 2024 as US inflation was easing toward the Fed’s 2.0 percent year-on-year (y/y) target. After the last meeting, officials signaled that just one cut is expected before the end of 2024.
While one could argue that this is a disappointment as investors and consumers by nature want lower interest rates (hence three is much better than one rate cut), one could also argue that it is a relief that we might see an interest rate cut at all in 2024. Considering US inflation remained stubbornly above the 2.0 percent (y/y) inflation target and a rising number of analysts argues that this target might not be realistic, there had actually been some concern whether the Fed would opt for a rate cut at all in 2024. However, after the last Fed meeting, markets are now expecting one interest rate cut this year. Moreover, in 2025, the Fed might become more aggressive with perhaps even four rate cuts (involving a 0.25 percentage point cut, each time).
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